Ad Tech Insiders Fear Google Tilts The Advantage Further In Its Favor

When Google revealed plans Thursday to exile YouTube ad inventory from the DoubleClick Ad Exchange (AdX) by the year’s end, many in the ad industry felt betrayed.

Google’s reasoning for this change isn’t clear, even to its partners. Its stated motivation is that it wants to devote more resources to developing other video ad products. But why would engineering resources be tied to the presence of YouTube inventory on AdX? That’s unclear, and Google hasn’t elaborated.

This has left partners to speculate on the tech giant’s real reason – and many believe the company is trying to artificially inflate the scarcity of its inventory and force greater reliance on its ad stack.

To recap, when Google’s policy takes effect, YouTube inventory (85% of which are the skippable “TrueView” formats vs. the 15- or 30-second, non-skippable units typically sold through AdX) will be available in three ways.

First, through the AdWords API, which is typically known for search; second, directly via Google’s sales team; and third, through the demand-side platform (DSP) DoubleClick Bid Manager (DBM).

But by the end of the year, independent DSPs will no longer access YouTube inventory via AdX. (There could be some workarounds, however, such as partner platforms with enough status in Google’s reseller program might get special access to YouTube inventory.)

For Google, Scarcity Is Value

Some sources believe Google is attempting to drive up the scarcity of its YouTube inventory.

“They’re seeing big deteriorations in their business because they’re selling inventory [through programs like Google Preferred and Partner Select] to clients at huge premiums,” said a media agency exec, who spoke on condition of anonymity. Those clients, however, are seeing that same inventory available for cheaper elsewhere and are therefore reluctant to renew the big deals they initially awarded to Google.

“The only way to get a premium in a direct-sold deal is to have something scarce,” that source said. “This is the voice of Google finance saying, ‘It has to be a scarce environment for us to score those premiums.’”

Another anonymous DSP source said its platform struggled to integrate with AdX in the first place, and eventually abandoned ship because the YouTube inventory available was mid- and long-tail, at best.

“They’re trying to sell more TrueView and do these big, premium commitments,” that source said.

By damming an acquisition channel for YouTube inventory, Google could entice buyers to increase their spend once they’re in its ad ecosystem, noted Scott Ferber, CEO of video ad platform Videology.

“It’s the same concept that Apple used in the music business,” he said. “Now, Apple iTunes is by far the dominant source to buy music.”

Raising The Walls, Destroying The Trust

The ad industry outside of Google has grumbled about how the tech giant is prioritizing its own buying and selling technologies. Last October, it barred third-party pixel firing on ads running through the Google Display Network. In April, it opened programmatic access for TrueView formats to its own bidder DBM.

And the rise of header bidding is also an industrywide attempt to free itself from the shackles of Google’s ad server – which some buyers feel has an uncomfortably cozy relationship with AdX.

The problem is these moves defy Google’s cheerful rhetoric to partners and advertisers about being a fair and neutral marketplace. In the ideal world, Google’s various ad tech pieces – its buying platform, selling platform, ad network, ad server – would all be siloed.

Maureen Little, SVP of business and corporate development at buying platform Turn, said it took a long time for Google to win back its trust, ever since it bought Invite Media in 2010.

“We felt it was inappropriate for them to buy a buy-side system,” she recalled. “Which master are you serving? But Google did a ton of work over the last four years to separate sales teams and reporting systems.”

“All the entities have to operate as individual businesses,” said Trade Desk CEO and founder Jeff Green. “That, by its nature, creates a fair marketplace that Google can compete in.”

In such a configuration, Google would architect each tool to be competitive on its own merits, not the fact that it’s tied to a larger stack or a supply of inventory with great reach. What Google is doing, in extracting YouTube inventory from AdX, is weakening those “Chinese walls.”

When Google bought Invite Media, Little recalled, it promised partners that everyone following Google policies could access any new feature or tool released within DoubleClick Bid Manager.

“Google made a decision that didn’t respect those Chinese walls,” Green said.

Raju Malhotra, SVP of products at Epsilon’s Conversant, acknowledges that the walls surrounding Google’s gardens have another layer of bricks at the top, but he also sees another, less diabolical rationale behind Google’s recent decision.

“Google at the core thinks about consumer experience,” he said. He speculated that it makes sense for Google to tighten up in order to better control the consumers’ experience around its advertising products.

What’s The Greater Effect?

As a mainstay in the ad ecosystem, Google’s moves attract a lot of attention. But most of the insiders AdExchanger spoke to shrugged off the immediate impact of Google’s decision.

YouTube represents less than 2% of total inventory for both The Trade Desk and Conversant, for instance. For Turn, that’s 1% on average – with an even smaller amount that’s actually purchased.

One would think video pure plays would feel the blow, but TubeMogul CEO Brett Wilson said just 5% of Q2 spend went to YouTube. Videology’s Ferber said that since 2015, its US users allocated 3% of total impressions toward YouTube inventory.

Although the change with AdX has “little material impact” in terms of inventory availability, it impacts the ecosystem as a whole.

Advertisers increasingly want to plan and buy holistically – not on a publisher-by-publisher basis – because they get better results, noted Ferber. Wilson echoed those sentiments, adding marketers get the short straw when walled gardens lock out third-party platforms, whose data targeting – if it could be used – would make the buys more effective.

Ultimately, Green said Google just made a “strategic mistake” and figures that YouTube inventory will eventually be made available programmatically once again. Google, he said, will find that it’s placing an inordinate strain on its sales force, which won’t be able to handle the volume.

Though Neal Mohan, Google's VP of video and display advertising, said in a blog post there’s a very small amount of YouTube inventory on AdX (read: About 5%), that’s still a substantial amount given YouTube’s size and billions of views per day.

As platforms like YouTube grow, Green said, the need for programmatic will go up over time.

“If you’re a publisher and you have massive amounts of inventory, so much so that you only put 5% on the exchange and that still represents a surplus, you need as much help as you can filling that supply,” Green said. And without an open market for demand, a big publisher like YouTube simply won’t be able to sell it all.

But Conversant’s Malhotra sees it differently. “I’d point out that going direct doesn’t mean selling through your people directly,” he said. “It has scale through a software as a service tool, which is DoubleClick Bid Manager.”

He adds that while 60% of all ad impressions are on YouTube, it only gets about 20% of all video ad spend.

“That tells me there’s an opportunity to monetize that better and at scale,” he said. So Google’s move could be an attempt to create quality and margin while scaling up.

“I don’t want to speculate on whether it’s a strategic mistake or not,” Malhotra added, “but when you look at the numbers and the growth in this business, I can see why someone like Google would do that.”

But in the end, it won’t be up to Google, despite its power in the ad tech ecosystem.

“The advertiser will have to decide how they want to leverage programmatic and buy digital, which is the only way this changes,” Little said. “Yahoo once pulled inventory out of their exchange for a while and had all these controls for separate seats and it nearly killed them. The market feedback that will be most critical will come from the buyer.”

The change implies that Google is cleaning up its marketplace, focusing on higher quality inventory, in an effort to avoid commoditization. Google is shifting focus toward an ad tech ecosystem that’s much more invested in YouTube. Both YouTube and Facebook want to be a premium destination site -- and it’s premium not programmatic for a reason. Yes, TrueView with its multiple formats and consumer-friendly skippability might be more complex than YouTube inventory on AdX, but this walled garden approach ultimately benefits brands - in terms of viewability, brand safety, and engagement rates. Read more here: http://pixvid.me/AdInventoryBlog

…and it’s premium not programmatic for a reason? …walled garden approach ultimately benefits brands? Really? It’s pretty clear by now that there is an unstoppable transition in the industry toward programmatic software driven buying of video across all screens and inventory sources, including premium inventory. Google’s latest move to pull YouTube out of its DoubleClick Ad Exchange will cost advertisers $millions more as the simple math shows that TrueView is significantly more expensive than equivalent completed video ads. Advertisers will also no longer be able to use their own preferred data sources for targeting. They will have to trust Google that the people not skipping their video ads are the people they actually want to reach. As a publisher, Google does have multiple constituents to serve, including its users, investors and advertisers, but this decision clearly wasn’t intended to benefit advertisers.